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As college and medical school tuition continues to rise exponentially, far outpacing inflation, it is no wonder that many newly minted physicians find themselves looking at seemingly insurmountable debt.
It is at this point in time when you come to a financial fork in the road and have two options:
- You can let this become one of your biggest financial mistakes and try to ignore it as long as you can, by using options such as deferment and forbearance (much like I did when I took the wrong attitude that future self will just take care of the problem).
- You can choose to attack this financial beast of burden head-on with the aim of trying to pay it off as quickly as possible.
For those that frequent physician finance blogs, Travis Hornsby should be no stranger to you as he is the brainchild behind the highly respected company, Student Loan Planner and has been featured on multiple websites.
I was therefore thrilled when Travis contacted me and wanted to do a guest post on how one plan of attack might be employed to address the growing student loan debt problem doctors currently face.
If you have student loans, you’ve likely tried to figure out a way to hack your payments.
How can you get out of debt even faster?
How can you ditch the ball and chain of debt and finally be free?
One option to consider is student loan refinancing.
Through student loan refinancing you can slash your interest rate on your student loan.
A lower rate saves you money on interest so you can pay down what you owe on the principal and get out of debt sooner.
Not everyone should employ this strategy, but it can be a good fit for some borrowers.
Here’s when student loan refinancing is your best option.
1. You have a large emergency fund.
Everyone should have an emergency fund, but especially student loan borrowers who want to avoid additional debt.
Let’s face it, none of us are immune to life throwing us an expensive curveball at any given moment.
Financial experts recommend having three to six months worth of expenses in the bank.
That way if you lose your job, get in a car accident, or have to take off some time for work you will still be in good shape, financially.
A fully-funded emergency cushion with at least six months of expenses is important if you’re looking to refinance student loans.
It’s great to lower your rate when refinancing, but you also end up losing certain protections from your federal student loans.
For example, you won’t have the option to lower your monthly payments with an income-driven repayment plan if you hit hard times.
Having an emergency fund that can help you deal with anything that comes your way is key and could mean that you’re ready to refinance.
2. Your retirement savings is maxed out and on auto-pilot.
Is maxing out your retirement second nature?
Do you have it automated?
If you max out your retirement accounts on the regular then you might be a good candidate for refinancing.
Maxing out your retirement savings consistently shows that your financial situation is stable and that you’re actively saving for your future while trying to save money for your present through refinancing.
Saving for retirement is an important part of your financial life and shouldn’t be at the expense of your debt repayment.
If you have this financial milestone handled, refinancing can be your best option right now.
3. Your career is in the private sector for life.
Do you enjoy working in the private sector and the salary that comes with it?
Do you have absolutely no desire to work in the public sector, ever?
Then refinancing is a good option.
When refinancing your loans, your old loans are paid off and you will then pay back a private loan with the refinancing lender.
If you have federal loans, that means no more federal benefits like student loan forgiveness.
One of the best student loan forgiveness programs out there is the Public Service Loan Forgiveness (PSLF) program.
Under PSLF, you’ll work in the public sector for 10 years and make 120 payments.
After that, you can get the remainder of your loans forgiven without paying any taxes on the discharged amount.
If you have any interest at all in working in the public sector, you likely won’t want to give up this great student loan forgiveness option.
But if you’re 100% set working in the private sector, look into student loan refinancing.
4. You have killer credit.
Have you never missed a payment?
Do you pay off your credit cards dutifully, keep your balances low, and keep your credit health in check?
Is your credit score a good 700 or above?
Then refinancing might make sense for you.
Having good credit is required to refinance student loans.
You’re applying with a private lender who wants to make sure you can pay back the loan.
One of the factors they consider is your credit score to help vouch for your creditworthiness.
The better your credit the more likely you are to get better interest rates, too.
Interest is what can make your debt load even more expensive, so having good credit and scoring low rates can help.
A positive credit score and credit report opens the approval doors to help you get the best rates and save money.
You can then use the interest you save toward the principal and pay down debt even faster.
5. You have extra money to play with.
If you have plenty of extra money after you pay bills, refinancing could make a lot of sense.
When you have more money to go around you can afford to take more risks.
Although refinancing is a great option to lower your interest rate, it does have some risk.
You give up federal benefits like income-driven repayment and student loan forgiveness.
Refinancing is irreversible so you want to be sure you’re in a good place to do it and won’t regret it later on.
That’s why if you’re struggling to make payments each month or if you’re living paycheck-to-paycheck, refinancing isn’t a good option.
You’ll want to have the option to go on income-driven repayment and the benefit of a lower interest rate would be nominal.
But if you have extra cash and feel good about your current income and expenses, refinancing could be a risk that pays off in the long run.
Find the best lender.
If you’ve met all the above considerations, student loan refinancing can help you get more favorable terms for your debt.
There are many student loan refinancing companies out there to choose from.
Be sure to consider the repayment term, monthly payment, APR, and any perks or hidden fees.
We offer cashback bonuses for some lenders so you can see if you can get even more savings.
You don’t have to be stuck at your current interest rate or with your terms.
There may be a better fit out there and if conditions are right, refinancing could be your best option.
Travis Hornsby founded Student Loan Planner after helping his physician wife navigate ridiculously complex student loan repayment decisions. To date, he’s consulted on over $400 million in student debt personally, more than anyone else in the country. He is a Chartered Financial Analyst and brings his background as a former bond trader trading billions of dollars.
He brings that same intensity to analyzing the best repayment paths for graduate degree professionals with six figures of student debt. He’s helped over 1,700 clients save over $80 million on their student loans, and he’s been featured in U.S. News, Business Insider, Forbes, Huffington Post, Rolling Stone, ChooseFi, Bigger Pockets Money, and more.
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
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